Attorney Malpractice Insurance Policies No Grace Period

Question from Attorney:

I am still looking at alternatives for renewing my attorney malpractice coverage and cannot get firm terms until I get Insurance Carrier Loss runs from my incumbent insurer. If I am a “few” days late renewing coverage is that going to be a problem? I have a “grace” period. There is a “grace” period, right?

Issue:

An attorneys may see the ‘Automatic’ Extended Reporting Period Endorsement (AERPE) section in a malpractice policy and assume there is a grace period. But by reading the paragraph describing the AERPE the attorney learns that the only time this option applies is if the insured has not renewed coverage with any insurer. The AERPE does not extend coverage. Only the insurer can extend coverage and it must be in writing. There is no grace period. Worse yet based on waiting for loss runs the firm likely has a claim and may have been non-renewed.

The major issues are:

1.       If you receive a non-renewal notice from your incumbent insurer you need to act promptly. Ask for loss runs right away. Non-renewed firms should never wait until the last minute hoping to get the non-renewal reversed. With claims-made insurance if there is no inforce coverage there is no coverage for past acts.

2.       Firms with claims made against the firm after the coverage has lapsed could cause your incumbent insurer to withdraw terms. The other malpractice insurer that you have been shopping with may withdraw or alter terms. Even if another insurer does offer terms, a newly reported claim may have no coverage. Without an Extended Reporting Period Endorsement (ERP) your incumbent insurer is not responsible for the claim and the new malpractice carrier will exclude coverage for the newly reported matter if coverage has not been bound prior to the claim being made.

3.       With a claim made between policy terms it could leave the firm with only one option to protect their past acts and have the claim covered.  That is to purchase a firm ERP (Extended Reporting Period Endorsement). This could be very expensive, but much less than paying a claim out of pocket. At this point the firm might get a new policy without prior acts coverage (Retroactive Date Inception or RDI).  Also remember ERP’s are time bound; an ERP can only be purchased from your incumbent insurer for a limited time that is spelled out in the policy.

4.       If you are waiting on loss runs from your incumbent insurer that allows another insurer to “firm” up terms, best know exactly what is on the insurance carrier loss runs. A loss run surprise could cause your new insurer to withdraw terms.

5.       If after going through all this you decide that your best course of action is to renew with the incumbent carrier, remember there is no grace period. The incumbent insurer’s underwriter is under no obligation to bind coverage after terms expire. This leaves firm with no good alternatives to protect past acts. Again the firm may have to rely on purchasing an ERP and get a new policy written with a gap in coverage without prior acts coverage.

Unfortunately, we have seen all these situations happen to firms. No one is happy. Procrastination on deciding to renew coverage has ramifications. Trying to save money at the last minute may cost much more than anticipated. If your firm is shopping for attorney malpractice renewal terms, make sure the alternative coverage is bound prior to the expiration of current coverage. Time does not stand still for those who wait.

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